100% mortgages were very much sought after, especially by first time buyers, who did not have a deposit. The reason for this is that this type of mortgage lends the borrower 100% of the property value. Definitely, this does sound quite tempting for anybody looking to get their very first home. However, not everything that glitters is gold.
As you probably imagined, there are not many banks or financial entities offering 100% mortgages. The reason for this is that lending a borrower 100% of the value of a property is extremely risky in these hard financial times. What this means basically is that you are stuck with only a few lenders, that provide you with no options at all.
The interest rates for 100% mortgages are sky high and almost impossible to afford. However, this is not all. As well as paying your interest rate, you will have to pay a higher lending charge premium. Even though some entities include the higher lending charge in the mortgage, it adds up to what you are already paying.
In addition to being high, interest rates are also variable. That is right, if you go for one of these mortgages, you will not be able to get a flat or fixed rate. You do not need to be an expert on finance to know how risky a variable interest rate is, especially nowadays with the financial crisis.
Obviously with this type of rate, you end up paying a lot more than just double of the actual property value and it doesn’t stop there. There are a lot of additional fees associated to this type of mortgage, which is kind of ironic if you consider that the people who take up these loans are those who do not have much money.
In addition, the borrower of a 100% mortgage runs the risk of having the property he purchased decrease in value. Something like this would result in what it is known as negative equity. The lending bank may find it appropriate to ask the borrower for more money to make up for the deficit.
In addition, if the borrower fails in making his payments towards the 100% mortgage he got, the bank may not only sell off the property but also the securities that were entrusted by the borrower. These securities may also be sold off in different case scenarios, but in all of them the result would be the same: A bad credit score.
As with all mortgages it is highly advisable to carry out a thorough research before you go ahead and get it. However, for everything that was explained above, it should be noted that 100% mortgages are for first time buyers like a wolf in a lamb’s clothing.
Julian J. Lenox reviews articles and websites for Finance Top 100, a complete Finance websites opinions storage. Read more at Offset Mortgage Calculator (http://www.offset-mortgage-calculator.com)
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